Tamzin Nel. Supplied
Tamzin Nel. Supplied

OPINION: ‘Factfulness’ is the cure for negativity'

By Tamzin Nel Time of article published Nov 22, 2019

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Financial behaviour tends to be more emotional than rational, and our financial behaviour, as with the rest of our actions, is a deep-rooted expression of our internal psychology. The problem is that there are numerous behavioural biases that impede our ability to reason if we don’t understand these inclinations and make a conscious effort to work around them.

We are constantly bombarded by a seemingly never-ending stream of negative news. And we are hard-wired on an evolutionary level to focus more on the bad news than (admittedly, the harder-to-find) good news. This is a psychological phenomenon known as the negativity bias.

In addition, not only does our brain’s “alarm bell” use more capacity (two-thirds) to look for bad news, but this bad news imprints far more quickly and lingers longer in our memory (in contrast to positive events and experiences, which are usually held in our consciousness for only a dozen or so seconds). There is positive-negative asymmetry.

Thanks to evolution, and our biological and chemical make-up, we register and recall the negative over the positive. Did you really have a bad day, or did you have only a bad 10 to 20 minutes during the day? Have you found yourself fixating on past mistakes or insults but rarely taking note of your achievements or the compliments that you receive? Does it cause you more pain to lose money than the pleasure of gaining an equivalent amount? This last one is an example of another behavioural bias called loss aversion.

So, not only are we subjected to bad news more regularly and easily, we also tend to focus on this more. We cannot do much about the way in which news is reported, since sensationalism sells. However, we can change the news that we actively seek out, and how we interpret it.

One of the best gifts I received last Christmas was a book titled Factfulness by Hans Rosling. Factfulness is the one option available to all of us to manage our mental and financial health. Factfulness is the stress-reducing habit of only holding opinions that you can support with facts.

The sub-heading of Factfulness is “Ten reasons we’re wrong about the world - and why things are better than you think”. Rosling and his collaborators, Ola Rosling and Anna Rosling Rönnlund, offer a radical new explanation of why we are wrong about the world and why it is better than we think. They reveal 10 instincts that distort our perspective and how to overcome these behavioural biases. In summary, we are negative because we misremember the past, are exposed to selective reporting by journalists and activists, and a part of us feels heartless to say that things are getting better when some things are still bad (even if they are improving).

The world is constantly changing, and it is important for investors to update our knowledge and worldview accordingly. Understand the type of information you are consuming and make sure you are making your decisions based on facts and not on your primordial negativity instinct. If you are not, make the necessary changes or ask for guidance and assistance.

Seeking out positive facts and factual news will not only improve your mental health, but your financial health as well.

Tamzin Nel is a portfolio manager at Anchor Capital.


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